14 Dec 2010

Excellent Software Company Metrics Article

I love solid metrics! Not for the sake of metrics (a common problem), ones that drive real business decisions. Clate Mask guest posted an article on Venture beat that outlines his Top 5 metrics for software CEO's. It is really worth a read to learn what they are and why he thinks they are important.
The list:
  1. Cost Per Acquisition (CPA) - He includes sales and marketing costs and takes into consideration the sales cycle in his metric (love this idea)
  2. Revenue Per Employee - Good rule of thumb that a strong business will eventually hit $200K/employee. The climb up to this number is worthy of an article of its own.
  3. Customer Loyalty - More of a qualitative metric from survey data like Net Promoter Score. I like using this as an early indicator of potential problems.
  4. Lifetime Customer Value (LCV) = Average Revenue Per User/Churn - A great metric to keep in perspective 1) the value of your current customers and 2) other ways beyond new sales to increase the value of your company (increase ARPU or reduce Churn)
  5. Usage - This is an interesting metric that will take some time to properly define for your business (it will be different for each business). I agree that if your customers actively use your solution this bodes well for a company, but wonder if just focusing on a customer loyalty metric is enough?
Great list and I encourage you to read the article.
13 Dec 2010

NY Times Praises The Atlantic's Transformation to Profitability, Then Demonstrate How They Don't Get It

I love stories about traditional businesses in the middle of significant disruption that respond by reinventing themselves in alignment with the disruption. The New York Times piece on The Atlantic finally turning a profit after a decade of losses is one such story. Desperation breeds change and The Atlantic responded by imagining themselves "as a venture-capital-backed start-up in Silicon Valley whose mission was to attack and disrupt The Atlantic,” said Justin B. Smith, president of the Atlantic Media Company.

I encourage you to read the story of their transformation, but I couldn't help but chuckle when I saw this paragraph in the middle of the story:

The strategy is not a cure-all template for troubled media companies, of course. The Atlantic, a tiny enterprise compared with vast corporate magazine empires like Time Inc. and Condé Nast, has only about 100 business and editorial employees and a circulation of 470,000. A scale that small means that a few million dollars could push the company over the top — an amount that would barely register on the balance sheets of many other publishers.
 
The author defines the business by the number of employees and the (print) circulation! Two metrics that are being completely challenged by the internet disruption. I read into that statement, "While we really think this strategy is cute for a small publication like The Atlantic, it would never work for a massive institution like the NY Times". I am not saying the strategy should be exactly the same, but the NY Times should be thinking along the lines of, given this market disruption, how would a Silicon Valley start-up disrupt us.Thinking you are different because you have more employees and a higher print circulation when those metrics are from increasingly irrelevant business models tells me they have a long way to go. Main question from my perspective: Who's income is increasing and who's is decreasing?

Credits:
I discovered the story from GigaOM

Other interesting reading on this topic
Mediactive by Dan Gillmor

Trevor Speirs's Space

Constantly Learning, Fearlessly Doing


Passionate about technology start-ups (especially at the intersection of social, mobile, and game technologies), I am currently exploring the large corporate world by helping a $4 billion multi-national improve their innovation strategy.
In my spare time, I try to find the best indie music bands to supplement my massive music collection and share with my friends.